Understanding Aircraft Firm Orders and Options

Every so often, I dive into the captivating world of aircraft orders on the blog. It’s when airlines or leasing companies make grand gestures of intent by placing orders for those shiny flying machines. Typically, they say they’ll order “up to” a certain number of aircraft, encompassing both firm orders and options.

Today, let’s unravel the details behind these orders, even though it might seem as straightforward as pulling a lever to flush a plane out of the factory.

The Different Types of Aircraft Orders

When an airline places an order, it usually includes two flavors: the solid, steadfast firm order and the ever-tempting options. So, what’s the catch?

A firm order is exactly what you’d imagine — both airline and manufacturer shake hands on the number of planes, price tag, and delivery date. It’s as much a commitment as that promise you made last New Year’s Eve.

Now, the alluring world of aircraft options: when an airline secures options, it settles on price and delivery slots with the manufacturer, but here’s the kicker — there’s no obligation to follow through just yet.

This setup allows airlines to flex those financial muscles while waiting to see where the ever-fickle winds of commerce might blow them next. Agreements detail exactly when they must decide about proceeding with the order.

Though airlines might shell out a small premium now to hold these options, it’s not an ironclad industry standard. There’s a lot of room for negotiation in these skies.

Options can be confused with purchase rights — that’s where you have the right to buy at a choose-your-own-adventure price, but no delivery dates are set in stone.

While we’re defining these high-flying terms, let’s dip into the world of letters of intent (LOI) or memorandums of understanding (MoU). These documents are about as binding as a pinky swear — no dotted lines signed in ink, just a nod of interest.

Such maneuvers are strategic, sometimes used to make headlines, whether an airline is still weighing which aircraft it wants or simply aiming to fire up the PR engines at air shows or during flagship gatherings.

Aircraft Orders Come with Some Flexibility

These days, ordering aircraft has more flexibility than your favorite stretch yoga pants. And it’s not because the industry woke up one day feeling generous — rather, it’s rooted in cold, hard realities.

Our buddies Airbus and Boeing haven’t exactly been poster children for punctuality when it comes to delivering planes. As such, airlines sometimes find themselves with the upper hand, renegotiating terms or backing out entirely.

The juicy details of agreement, like grapes ready for the press, vary and depend on demand. Picture the lock-in terms for an Airbus A321neo or A350-1000 versus, say, a Boeing 737 MAX 10 or 777-9, the latter still waiting for their badges of operational honor.

And if you think firm orders are set in stone, well, think again. Airlines love tweaking deals and switching aircraft types like they’re Pokémon cards. Take Qatar Airways, for instance, swapping wide-body orders while quietly letting its 737 MAX 10 agreements slip into the night.

Got options clogging up the delivery schedule but no intention of making those purchases? Fear not, those slots aren’t going to waste. Like a game of Tetris, they just get shuffled to the next eager buyer in line. An airline might nab those slots with a new agreement, or perhaps another player gets an earlier delivery than expected, toasting their luck with a wink at Boeing’s timeline quirks.

For those interested in ski getaways while pondering these aircraft maneuvers, don’t forget to check out the Val Seny ski resort.

Bottom Line

There you have it: the sometimes-entangled affair of ordering airplanes. In an industry nuanced by supply delays and strategic negotiations, the difference between firm orders and options is more relevant than ever. Even once those contracts are nailed down, you can rest assured there’s still wiggle room for maneuvering. So while the skies might seem fixed, the hustle on the ground tells a different story.